Prosecutors and attorneys for Enron's former chief accounting officer, Richard Causey, are negotiating a plea bargain on the eve of trial...

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HOUSTON — Prosecutors and attorneys for Enron’s former chief accounting officer, Richard Causey, are negotiating a plea bargain on the eve of trial for founder Kenneth Lay and former CEO Jeffrey Skilling, according to people familiar with the discussions.

If Causey agrees to plead guilty, his cooperation could prove enormously helpful to the government’s case against Lay and Skilling. All three face trial next month.

There is no guarantee any agreement will be reached, according to two people familiar with the discussions, confirming recent published reports. They spoke on condition of anonymity because of the private nature of the talks.

Negotiations could still crumble before the fraud and conspiracy trial begins Jan. 17.

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Any deal with Causey, 45, could give prosecutors a more potentially devastating witness against Lay and Skilling than former finance chief Andrew Fastow, who pleaded guilty in January 2004 to two counts of conspiracy.

Fifteen other ex-Enron executives have pleaded guilty to various crimes, including securities fraud and insider trading. Causey, Lay and Skilling have pleaded not guilty.

Enron crashed in December 2001 upon revelations of hidden debt and inflated profits, leaving thousands out of work and roiling Wall Street with billions in investor losses.

Causey, Skilling and Lay are accused of conspiring to fool investors into believing a wobbly Enron was healthy.

Potential damage

“Causey’s defection essentially on the eve of trial would be a huge blow to Skilling and Lay,” Robert Mintz, a former federal prosecutor, said Sunday. “A last-minute deal for Causey would signal weakness precisely at the time that these defendants are trying to project strength.”

Sean Berkowitz, head of the Justice Department’s Enron Task Force, declined comment. Reid Weingarten, one of Causey’s lawyers, didn’t respond to requests for comment.

Daniel Petrocelli, Skilling’s lead trial lawyer, defended Causey. “Rick Causey doesn’t have a criminal bone in his body,” Petrocelli said.

Lay’s lead attorney, Michael Ramsey, was skeptical a plea deal could be reached. “I don’t think he’s going to say that he’s guilty of something he’s not, so I don’t think the deal’s going to make it,” Ramsey said. “That’s based on talking to the guy many times. I just think he’s honest.”

The 34 charges against Causey include fraud, conspiracy, lying to auditors, money laundering and insider trading. The people who confirmed the plea talks couldn’t say to which counts he might plead guilty.

Similar charges

Most of Causey’s charges overlap with the 35 against Skilling, which stem from allegations of approving false or misleading financial statements and regulatory filings.

Several of Causey’s charges also overlap with the seven fraud and conspiracy counts against Lay regarding alleged efforts to convince analysts and credit-rating agencies that Enron was strong in the months before it collapsed.

The indictment alleges schemes behind misleading financial statements included inflated asset values, hidden debt, sham asset sales, use of energy trading profits to make the company’s money-losing energy retail unit appear healthy and faking earnings in Enron’s sickly broadband unit.

In his plea nearly two years ago, Fastow said he and others manipulated publicly reported financial results to mislead investors, boost Enron stock and maintain creditworthiness. Fastow also admitted skimming millions of dollars for himself and others at Enron’s expense.

Causey is accused of being “a principle architect” of schemes to mislead investors, manipulate earnings and pocket millions from sales of inflated stock. Unlike Fastow, he wasn’t accused of siphoning money for himself from shady deals.

“Numbers guy”

“Causey will be much tougher to discredit if he jumps ship and testifies for the government,” Mintz said. “He was the numbers guy. Presumably he has information about Skilling and Lay that no one else can provide.”

Prosecutors also allege that Causey forged a “global galactic” written agreement with Fastow that promised profits to Fastow’s partnerships from deals with Enron.

Causey was fired in February 2002 after an internal investigation concluded he had failed to adequately protect Enron’s interests when the company entered deals with Fastow-run partnerships.

The charges against Causey came just a week after Fastow pleaded guilty and promised to help prosecutors seek indictments of other top executives.

Skilling was added to the indictment in February 2004, followed by Lay five months later.

Lay is charged in a separate case with bank fraud and lying about his intention to use loans to buy stock on margin.

Andersen alums

Causey was one of many Enron executives who joined the energy giant after working for its former outside auditor, Arthur Andersen. He started at Enron in 1991 as assistant controller and became chief accounting officer in 1999.

Causey has been free on $1 million bond.

At that time, Mark Hulkower, one of Causey’s attorneys, said he was a “decent, honorable and innocent man” who “has done nothing, absolutely nothing, wrong.”